Ditch tax raids and go for growth, Sunak told
THE Confederation of British Industry has urged ministers to “go for growth” amid fears of a devastating tax raid and 1.6m job losses as the furlough scheme ends in a nightmare autumn.
Business leaders and senior economists are begging Rishi Sunak to ditch mooted tax rises in his autumn Budget, as he fights to repair the fiscal wreckage of the pandemic.
In a veiled message to the Chancellor over tax, Josh Hardie, deputy directorgeneral of the CBI business lobby group, said: “However the Government decides to handle debt, one thing is certain – a growing economy backed by investment will make it easier.
“With so much uncertainty ahead with the pandemic and Brexit, now is the time to go for growth.”
It is feared that any increase in taxes would be counter-productive as Britain struggles out of one of its deepest ever recessions. Rumoured plans to raise corporation tax from 19pc to 24pc and target wealth creators with higher capital gains taxes could ultimately drive down the Exchequer’s takings by triggering mass avoidance.
Mike Cherry, national chairman of the Federation of Small Businesses, warned tax rises should be the last thing on the minds of policymakers.
He said: “It’s an approach that would send completely the wrong message to those who are out of work and thinking about starting up their own venture.”
Economists have forecast that severe job cuts already felt across corporate Britain could swell into a tsunami as the taxpayer-funded furlough scheme is wound down next month. From today, Job Retention Scheme rules will be tightened further as the Treasury only pays 70pc of employees’ normal wages up to a cap of £2,187.50, with employers required to top this up to 80pc. The scheme has protected 9.6m jobs so far.
Experts at KPMG predict a 10.3pc growth slump for the UK this year, with a second lockdown potentially triggering an even deeper 12.6pc decline.
The end of the furlough scheme will send unemployment shooting to a peak above 9pc in the final quarter of 2020, Yael Selfin, its chief economist, warned – more than twice as high as the 3.9pc current level and equivalent to some 1.6m workers losing their jobs.
This predicted peak is higher than the 7.5pc forecast by the Bank of England and the recovery will take longer, Ms Selfin added. It is feared the economy is now going through deep and long-lasting structural change as millions of workers permanently abandon the office to do their jobs remotely – wrecking town and city centres.
Ms Selfin said: “We expect unemployment to fall very gradually this time as well, because of the intertwining of structural changes and the economic shock created by the pandemic.”
KPMG’s forecasts of an 8.4pc recovery in growth during 2021 are based on a Brexit deal being struck with the European Union by the end of the year and a Covid-19 vaccine being approved in January. Failure on both counts could mean the UK bounces back at less than half this pace, it added.
Business leaders have urged Mr Sunak to turbocharge hiring through tax cuts. Mr Cherry added: “We have to bring down the upfront costs of hiring. That starts with reducing employer National Insurance contributions.”